E Good News Is Bad News

Good news is often bad news. The Nov. jobs figures show that while the unemployment rate remained at 5%, some 211,000 new hires took place that month. Moreover, the Oct. figures were revised upwards. That means the Fed will raise interest rates for sure at its meeting in two weeks. That means Mexico and Canada must raise their interest rates too. This can hurt their economic growth and employment levels, ultimately because they are “too far from God, and too close to the United States”.

The same is not true of Europe. In anticipation of higher interest rates, their stocks were mostly up on Friday.

Gold and therefore our SPDR GLD ETF (GLD), are up a second day in a row. This is mainly because the rise of the euro and the resulting fall in the dollar make the yellow metal attractive for averaging down. Adrian Ash, head of research at our advertiserwww.bullionvault.com writes:

“Selling gold looks like a ‘crowded trade’ for hot-money hedgies and fund managers, the 6^th biggest ‘short’ position in US derivatives in at least 20 years.

“Analysts everywhere think the Euro is going down. Because the single currency is so weak, the only option everyone thinks is more QE and lower interest rates. That is exactly what the European Central Bank delivered on Thursday.

“But the extra money printing and the extra sub zero rates (minus 0.3% on ECB deposits) didnt meet what analyst, money manager, and traders wanted. Bang! Went the euro, jumping at its fastest pace since 2009 and erasing the last month of losses against the US$.

“To sell a currency you need to buy another. And even before the US CB, the Federal Reserve, gets around to raising its key interest rate from zero, history says the US dollar has now enjoyed its 3^rd longest rise in the last 4 decades.

“When everyone expects the same thing, they might get the opposite, especially with ham-fisted central banks desperately trying to ensure it happens too.

“Thursday’s jump in the euro meant a huge drop in the dollar. That rescued gold and silver prices from new 6-year lows. For Eurozone investors, the surge in the single currency meant gold and silver became very much cheaper. Their central bank is, after all, trying to destroy the value of their cash savings.”

Adrian is careful to point out that just because shorting gold is a crowded trade it may not necessarily be a losing one. In early 2013 gold was a popular short and collapsed 25%.

Note that while the euro markets suffered from currency trends, this did not hit Britain, Switzerland, Norway, Sweden, and Denmark, which would have become subject to currency inflows out of the euro if the ECB had gone further in cutting rates and quantitative easing.